Traders bet on drop this week.
$50.50 put options expiring on Friday, January 24th, on Advanced Micro Devices (AMD) saw a 43-fold rise in volume, going from 102 open contracts to over 4,350 trade hands.
The bet is that shares will fall about 1 percent from their price near $50.95 in the next four trading days.
The option buyer paid $0.73 on average per contract, so shares would need to decline under $49.75 for the buyer to profit at expiration.
Shares of Advanced Micro Devices have had a stellar year with a 151 percent gain. That gain shows little sign of a slowdown after the company recently unveiled its latest line of computer chips.
Action to take: The sizeable trade may or may not play out—with so few days remaining and with the trade close to being at-the-money, it could go either way. We prefer options trades that have a higher win probability—and one that have a bigger potential percentage gain when they do win.
We’re still bullish on shares over the long term as we have been in the past, so a January 2021 $60 call looks like a more interesting trade for the likelihood of profits as well as the potential return there. A 20 percent return in shares in 2020 is reasonable, even after the company’s rally last year.
Investors looking to buy have missed out on a great rally already, but should use any weakness under $50 as a reason to pick up shares.